The effect of government expenditure on economic growth: The case of Tanzania using VECM approach

Abstract

The purpose of this paper is to observe empirically the effect of the government spending annex economic growth in Tanzania for the period covered 1990 to 2015 using VECM approach. The results revealed the existence of long-run cointegration among all our variables. Also, the results showed that government expenditure, foreign direct investment inflows, gross capital formation and inflation have positive and significant associations with Tanzania economic growth in the long-run and short-run as well. However, the government and policy-makers must become stable the variation of the inflation rate of commodities to persuade economic growth of Tanzania. Finally, the study suggests that government expenditure promotes economic growth in Tanzania and the paper recommends that more of government's resources should highly allocate to capital expenditure.

Keywords: Government Expenditure, Economic Growth, VECM, and Tanzania.